Economists say South Africa’s interest rate moves are heavily tied to what happens in the United States – but China plays a role too.
While the South African Reserve Bank has said time and time again that it bases its policy decisions on a host of independent data, economists say the reality is that the bank is heavily tied to what happens with the United States Federal Reserve.
The confidence that the cutting cycle will start soon is based on sentiment around the US Fed – where markets are betting on its first cut happening in September. Economists at Bank of America have also softened their projections for rate cuts based on the turn in sentiment around the Fed’s next move. The group says that rate cuts for South Africa in September and November are more likely if the Fed cuts first.
The US is a massive capital market, and the health of that market determines the flow of investment. However, the US is not alone in its influence; the Chinese economy is also involved in the tug-of-war. The challenge for central banks, Odendaal said, is that they need to set interest rates today that will impact the economy in the future, based on data from the past.central banks set interest rates with only one eye on domestic inflation and economic dynamics and the other squarely focused on the Fed.
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